Carlisle Companies Inc Q3 FY2023 Earnings Call

Good afternoon. My name is Ina, and I will be your conference operator today. I would like to welcome everyone to the Carlisle Companies Third Quarter 2023 Earnings Conference Call. I will now turn the call over to Mr. Mehul Patel, Carlisle's Vice President of Investor Relations. Mehul, please go ahead.

Thank you, and good afternoon, everyone. Welcome to Carlisle's Third Quarter Call. I'm Mehul Patel, Head of Investor Relations for Carlisle. We released our third quarter financial results today, and you can find both our press release and the presentation for today's call in the Investor Relations section of our website. On the call with me today are Chris Koch, our Board Chair, President and CEO; along with Kevin Zdimal, our CFO. Today's call will begin with Chris. He will provide highlights of our third quarter results and accomplishments, followed by Kevin, who will provide an overview of our financial performance and an update on our outlook for 2023. Following our prepared remarks, we will open up the lines for questions. Before we begin, please refer to Slide 2 of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As Carlisle provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are also available on our website. With that, I will turn the call over to Chris.

Thank you, Mehul. Good afternoon, everyone, and thank you for joining us on Carlisle's Third Quarter 2023 Earnings Call. In the third quarter, we reached a significant milestone in Carlisle's 105-year history, moving from a diversified industrial portfolio of businesses to a building products portfolio of businesses. The pending sale of CIT will mark the final step in the successful completion of our pivot to become a best-in-class pure-play building products company. Our journey to become a focused building products portfolio began in 2021 when we, as part of our superior capital allocation methodology, made the strategic decision to enhance Vision 2025 and the future of Carlisle by allocating our future cash flow and human capital into investments that would reinforce and expand our businesses that have consistently delivered the highest returns. We're confident that a focused portfolio of innovative products, services, and solutions in the building envelope space that drive energy efficiency, labor reduction, and are priced to the value provided will benefit our employees, customers, and communities while allowing our shareholders to capitalize on industry-leading returns. Importantly, we deliver products, services, and solutions with a clear value proposition and a significant financial return for end users and contractors alike, ensuring their businesses operate more effectively. When coupled with the Carlisle experience, these innovative products, services, and solutions will create a significant and clear differentiation for Carlisle in the competitive building envelope marketplace of today and tomorrow. This new building products focus of Carlisle and the accompanying key strategic actions will build on the strong foundation of Vision 2025 and will form the key principles of our next strategic plan, Vision 2030, which will be released in December. We are proud of what our team has accomplished under Vision 2025, and look forward to sharing with all of you the next phase of value creation at Carlisle with the December launch of Vision 2030. Turning to our third quarter results on Slide 3. In the third quarter, excluding CIT, Carlisle achieved consolidated sales of $1.3 billion, adjusted EBITDA of $340 million, and adjusted EPS of $4.68 per share. Our sales in the third quarter were negatively impacted by the effect of increasing interest rates driven by the ongoing Federal Reserve actions. In addition to the interest rate impact, the third quarter was also negatively impacted by tighter lending standards and increasingly conservative sentiment at contractors and distributors with respect to their inventory levels as we enter the traditionally lighter fourth and first quarters. We are nonetheless pleased that despite the sales declines, our third quarter margin performance, pricing position, and market share remain consistent with our expectations. CCM and CWT together delivered remarkable EBITDA margin performance of 27% in the quarter, marking a 100 basis point improvement year-over-year as well as a sequential improvement from the second quarter. CCM delivered a second consecutive quarter of 30%-plus EBITDA margins, and CWT drove a solid 90 basis point improvement in EBITDA margins sequentially. This performance showcases our ability to maintain strong margins throughout economic cycles. Our market position, brand strength, and price discipline, complemented by the value we provide to customers through the Carlisle Experience and efficiency gains driven by the Carlisle Operating System, are, and will remain, pillars of strength for Carlisle's future under Vision 2030. At CCM, our team remains focused on executing their proven long-term strategies that have yielded consistent success over the last two decades. This focus involves maintaining our brand strength through the Carlisle experience, solving end-user problems through innovation, and driving efficiencies through COS and operational excellence. One additional market note: the destocking headwinds we faced over the past four quarters were largely in commercial roofing and are now behind us, setting the stage for a more normal 2024 buying profile. CWT delivered another exceptional quarter with 37% growth in EBITDA year-over-year. Revenues performed largely as expected, reflecting the impact of the challenging residential housing market but offset by the nondiscretionary R&R exposure derived from CWT's commercial and residential roof coating solutions. The CWT team continues to excel in realizing synergies related to the Henry acquisition, achieving operational efficiencies through COS and enhancing margins through system selling initiatives. Building on this solid performance in the third quarter, we expect the positive EBITDA growth story to continue with CWT, especially as we continue to invest in operating efficiencies and scale volume through investments and share gain initiatives. Please turn to Slide 4. While we acknowledge the near-term challenges driven by higher interest rates, tighter lending conditions, and industry-wide concerns over the timing of restocking actions, we remain exceedingly bullish on Carlisle's longer-term value creation runway. As I mentioned earlier, with our pivot to a pure-play building products portfolio now essentially complete, we are a more efficient and focused organization, positioned extremely well to benefit from attractive long-term secular trends that include a robust reroofing cycle, increasing demand for energy-efficient buildings, a significant need for solutions that increase labor efficiency on the roof, and the desire for innovation to deliver value throughout the construction process, and ultimately, building ownership. I want to spend a minute to highlight our key drivers of success and why we are positioned to win within this backdrop. CCM is benefiting from a multiyear backlog of reroofing projects in the U.S. with 40% of total roof square footage requiring replacement in the next 10 years. This backlog is helping to ensure consistent and reliable demand. CWT's revenue, with 50% derived from repair and remodel demand across the building envelope and in both commercial and residential markets, provides balanced exposure to mitigate the ebbs and flows of the economic cycles. Sixty-five percent of Carlisle's sales are derived from lead-certified products, clearly demonstrating the growing demand for energy-efficient solutions and integrated systems to reduce carbon-related emissions from buildings. We have a growing pipeline of innovative products and are significantly increasing our investment in R&D to develop more environmentally sustainable products with improved performance and integrated system solutions that are easier to install. In 2023, we have delivered $290 million of sales from products introduced in the last three years. The Carlisle Experience has established us as a premium brand with a recognized value proposition backed by high-quality products and exceptional service, ensuring we deliver the right products at the right place and at the right time. Lastly, we have significant financial flexibility, thanks to our robust balance sheet and strong cash flow generation, allowing us to fund disciplined value-creating acquisitions, internal growth initiatives, and provide for the consistent and reliable return of capital to shareholders through almost a half-century of growing dividends, and in the last five years, significant and opportunistic share repurchases. Please refer now to Slides 5 and 6 for our progress on sustainability. Sustainability is a very important focus for Carlisle. As an organization, Carlisle is committed to being a responsible environmental stakeholder, and we strongly believe that creating a more sustainable environment is also productive and economically beneficial for our shareholders. In December of last year, we announced our goal to achieve net-zero emissions by 2050. While 2050 is still quite a few years away, we recognize the need to start taking action today to meet this target on time. To hold ourselves accountable and show measurable short-term progress, we created two near-term emissions reduction targets by 2030 in conjunction with the Science-Based Targets initiatives, also known as SBTi. First, we committed to a 38% reduction in both our Scope 1 production GHG emissions from the manufacture of our products, and our Scope 2 operational GHG emissions from purchased energy in our operations. We also committed to a 48% reduction in our Scope 3 upstream and downstream GHG emission intensity as we transition to lower carbon feedstocks. To reach these targets, we focused on three pillars. The first pillar is manufacturing energy-efficient products. As an example, in 2022, Carlisle sold more than $3.5 billion worth of lead-qualified products to the residential and commercial building industry. Our customers will save as much as 155 million megawatt-hours over the lifetime of those products, which is enough energy to power almost 14 million homes in the U.S. for a year. In addition, we converted over 50% of our spray foam blowing agents from traditional HFC formulas to more environmentally friendly HFO formulations. As a reminder, HFCs are 1,000 times more carbon-intensive than HFOs. So this action resulted in reductions of almost 10,000 tons of Scope 1 GHG emissions and over 200,000 tons of Scope 3 emissions, while at the same time contributing to over $2 million in annual cost savings. This transition from HFCs to HFO comes 13 years ahead of the mandated EPA HFC phasedown requirements, positioning Carlisle as a leader in the spray foam insulation sustainability landscape. The second pillar is lowering emissions across our facilities and manufacturing processes. Carlisle's leadership in driving environmental management in our factories is reflected by our qualifying an additional nine facilities this year to ISO 14001, the environmental management standard. We now have 42% of Carlisle facilities qualified to ISO 14001. This year, we also launched energy management programs at our Montgomery, New York, and Tooele, Utah plants to drive the necessary enhancements to be prepared for ISO 50001 certification by the end of 2025. Both programs are yielding significant waste and energy savings, ultimately reducing our carbon footprint and returning value to our shareholders. Earlier this year, we invested over $125 million in our new Sikeston, Missouri polyiso facility. This investment in Sikeston represents the latest in manufacturing advances and is another example of our commitment to reduce emissions from our facilities through the latest advancements in green building technology, including solar power generation and energy base load control systems. We are extremely pleased that Sikeston meets the highest sustainability standards, including LEED platinum specifications. We are also pleased that pending final certification by the United States Green Building Council, Sikeston will be the first LEED v4 platinum manufacturing facility in the entire country. The LEED v4 standard is a performance-based approach to efficiency management that calls for measurable results throughout a building's lifecycle, and we are proud to lead our industry in this transformation. Our third pillar is reducing landfill waste. This includes developing programs and partnerships to recycle and upcycle materials away from landfills. As an example, Carlisle was piloting a program to recover and recycle roofing materials, which has helped divert 95,000 metric tons of waste from landfills since the inception of the program this year. These are just a few examples of our ongoing sustainability efforts, and I encourage all of you to take a look at our 2022 corporate sustainability report, which we published at the end of August and is posted on our website. It contains superb information, including clear examples of how our products reduce carbon footprint in buildings, reduce emissions in our operations, and how we plan to reduce waste to landfills. Please turn to Slide 7. Our earnings power and margin sustainability in this challenging environment demonstrate the success of Vision 2025. As a reminder, the pillars for sustainable value creation at Carlisle under Vision 2025 include one, drive mid-single-digit organic revenue growth; two, utilize COS to drive continuous improvement and drive greater efficiency; three, build scale with synergistic and accretive acquisitions; four, maintain a returns-focused capital allocation strategy, including organic investment to drive growth, a disciplined approach to M&A, and returning capital to shareholders. Notably, thus far in 2023, we've returned $699 million to shareholders with share repurchases of $580 million and $119 million paid in dividends. Of course, none of this could be possible without continuing to rely on, invest in, and develop exceptional talent. With Vision 2025 targets achieved, and the pivot effectively complete, we will now turn to Vision 2030, the next phase in our 105-year journey as a company. Vision 2030 will continue to build upon Vision 2025, but with a focus on building products. As I mentioned earlier, Vision 2030 will be released in December and we'll provide comprehensive details about our path to further value creation for all Carlisle stakeholders. With that, I'll turn it over to Kevin to provide additional financial details as well as our updated outlook for the fourth quarter.

Thank you, Chris. For segment highlights, please turn to Slide 8. CCM delivered third quarter revenues of $914 million, down 16% from the prior year. The decline was due to the remaining destock of $50 million that we expected in challenging end markets driven by higher interest rates, tighter lending conditions, and project delays. Adjusted EBITDA margin was strong at 32% as we maintained pricing discipline while holding share, which drove positive price/cost in the quarter. In addition, CCM drove cost reductions through operating efficiencies supported by our continuous improvement culture in the Carlisle operating system. Moving to Slide 9. Revenues at CWT decreased 15%, primarily due to residential demand weakness and project delays. Adjusted EBITDA margin was 23.4%, expanding 890 basis points from the third quarter of 2022. The CWT team continues to excel in realizing synergies with the Henry acquisition, achieving operational efficiencies through COS and enhancing margins through system selling initiatives. Slide 10 provides year-over-year bridge items to the third quarter adjusted EPS. Moving to Slides 11 and 12, Carlisle ended the third quarter of 2023 with $108 million of cash on hand. We repaid our $300 million senior notes on September 1 and have $1 billion of availability under our revolving credit facility. We generated cash flow from continuing operations of $390 million and invested $30 million in capital expenditures. We deployed $330 million toward share repurchases and paid $42 million in dividends. As of the end of the third quarter, we have 8.6 million shares available for repurchase under our share repurchase program. Turning to Slide 13. We have provided our updated Q4 2023 financial outlook. For CCM, we expect year-over-year revenue to decline 3% to 5% in the fourth quarter. For CWT, we expect year-over-year revenue to decline approximately 10% in the fourth quarter. For the total company, we expect year-over-year revenue for the fourth quarter to decline 5% to 7%. We attribute the lower revenue primarily to the challenging markets and overall economic uncertainty, which is causing project delays. Given the solid execution by our teams across Carlisle, EBITDA margins are expected to increase approximately 200 basis points year-over-year despite the lower volume expectations. We remain focused on disciplined pricing, which is leading to better price/cost capture this year, operational efficiencies, and managing costs through our continuous improvement efforts. With that, I turn it over to Chris for closing remarks.

Thanks, Kevin. In closing, I once again would like to express my thanks and appreciation for the excellent work done by all of Carlisle employees in the third quarter. Their perseverance and commitment to Vision 2025 has allowed us to continue to deliver solid results and maintain an optimistic outlook for the future. And that concludes our formal comments. Operator, we are now ready for questions.

And your first question comes from the line of Tim Wojs from Baird.

Maybe just to start, I know you gave us the guidance ranges for Q4 with the segments in kind of a total company. I was kind of curious if there were any kind of base case kind of planning assumptions that you'd be able to kind of share on '24 at all, just kind of high-level puts and takes as we kind of think about revenue and margins.

Yes, Tim, it’s kind of early, as you know, we’re going through our 2024 planning right now and wrapping things up with the division. So we still need to get their final looks in that. We’d like to update in greater detail when we launch Vision 2030 in December. So there’ll be somewhat 11 other months, and we’ll have that under our belt. Where we’ll be able to give you a little more perspective on our outlook for '24. But I think Kevin will share a few things that might help with our perspective on where we think '24 is going.

Yes, we are experiencing some benefits from destocking, which will be favorable for 2024. Pricing has remained stable during the third quarter, and we expect that to persist into the fourth quarter and 2024, though it may decrease slightly overall for the year. As Chris mentioned, it's too early to evaluate the end market demand.

So Tim, regarding pricing, I've been quite surprised by the feedback we've received concerning competitor actions. However, one positive aspect as we approach 2024 is that our margins have remained stable, and our pricing in core CCM was essentially flat during the third quarter, reflecting real stability. This indicates a level of rationality in the market despite the chatter from competitors and a decline in overall volumes, which is encouraging as we head into 2024. On the raw materials front, there might be some pressure, primarily influenced by events in the Middle East. While our raw materials aren't directly linked to oil prices, many of them are indirectly affected. Additionally, we're seeing continued positive developments with CWT, with the third quarter showing progress driven by Frank Ready and the CWT team taking action on multiple fronts to support margin expansion and align more closely with our aspirational levels, particularly regarding CCM for CWT. Lastly, we are dedicated to innovation, which should provide some beneficial support, albeit small, from new products in both CCM and CWT.

Okay. Okay. No, that's helpful. And then just given the announcement you guys made last month around selling CIT and kind of moving that to discontinued operations. I mean can you just maybe elaborate a little bit on what that sale price or that process looks like? And maybe kind of give us a little bit of a timeframe there?

Yes. First of all, this is a fairly standard process. Most of the interest has been from strategic parties. We have several parties involved and everything is progressing smoothly, which we are pleased about. We aim to have a contract signed sometime in the fourth quarter. Based on our announcements, you can gauge where we are in the process. We expect to close shortly after the start of the year, and if we can close sooner, that would be fantastic. Overall, the process is going well with good interest, and it's an exciting time for our business. We are happy with the response we've received.

Okay. Good. Just one last question from me. I don't think the fluid sale is reflected in the end of the quarter balance sheet. You were anticipating using the proceeds from that for buybacks. What would your buyback assumption be in the fourth quarter? Could you potentially use all of the proceeds in the fourth quarter to buy back stock, or would that carry over into the first half?

Yes. Our plan discussed in the last call was to reach $900 million for the year, which included $400 million we initially planned and an additional $500 million for CFT. So the total we're focusing on is $900 million. As you noted, we officially closed in the first week of October, but the $900 million figure remains unchanged.

And your next question comes from the line of Bryan Blair from Oppenheimer.

I appreciate all the detail on run rate CCM dynamics. Just to level set, what is your team seeing in the first month of Q4? Does that align with the down 3% to 5% guidance? Or is there some reliance on further easing of comps in November and December?

No, I think October, actually, we were pleased with how October is shaping up. Obviously, with this dynamic environment, I think we have the same concerns you do as to when, what’s happening, but it’s been positive both from a billings bookings perspective and what we’re seeing going into November.

Understood. Price/cost remains a good guy. What has been realized year-to-date? And is there an updated full-year guide on that front?

Yes. So we gave a range last time for CCM at $60 million to $80 million for the full year, and we expect we can narrow that range to $70 million to $80 million for the year. And yes, about 3/4 of that has been realized at this point.

Got it. Appreciate that detail. And then last one, the step-up in CWT margin has been nice. And there’s obviously a lot of noise playing out quarter-by-quarter. But if we balance the second and third quarter of last year relative to this year, 650 basis points or so, margin expansion. How should we think of the breakout of the drivers there? Clearly, price/cost has been again, a good guy for that segment, synergies are reading through. I believe you’ve exited a less profitable or unprofitable business. Just curious if you can provide any detail on what the drivers are there and what we should expect going forward, Chris, I believe you said that the aspirational margin target is much closer to CCM. So that’s quite compelling if you can make that happen.

Yes. Kevin will provide you with additional insights, but I want to highlight my satisfaction with the progress. I credit Frank and the team, including Mehul, for effectively integrating operations from Henry into Carlisle and realizing the necessary synergies. I believe there are still additional synergies to unlock, which will serve as a key driver. Regarding the business, Frank acted quickly to exit the rubber business and consolidate several factories, and the teams embraced the COS initiative. I see significant potential with COS, as we've conducted extensive planning and assessments and are just beginning to invest the necessary capital. There's a long opportunity ahead with COS, which is encouraging. You can expect continued streamlining of operations, improved efficiency, and enhanced operational performance through COS. Kevin will also discuss a few more points.

Yes, Chris, at the key highlights there, but the other one was selling initiatives. They’re doing a good job on that piece of it. Obviously, you don’t see at all with what’s happening in resi right now, but that’s been a positive. And yes, we expect continued improvement into 2024 and into 2025 as well from that number. So year-over-year improvement in each of the upcoming years.

We have some exciting new products that Frank is working on, and Henry recently won Supplier of the Year at Home Depot. This presents a new opportunity for us at Carlisle, and Frank is doing well in creating ways to integrate our products into that channel and exploring potential acquisitions to strengthen our position there. Overall, we have several positive strategies in place to aim for our target margin of around 30 percent or more.

And your next question comes from the line of Saree Boroditsky from Jefferies.

Obviously, a large portion of CCM is driven by reroofing demand. Can you just talk about the appetite in the ability of building owners to push out jobs if they decide to patch a roof? And if they do patch it, how much time does that buy them?

We have Mehul here, who is the expert on patching and roof coatings. I think he can provide insights on this topic. One of the challenges we face is the number of routes that are under warranty. Henry has a warranty related to their roof coatings, but when we discuss roof warranties, we need to consider how far people are willing to extend that warranty. Generally, our warranties last about 20 years, and people usually start thinking about reroofing around the 17 to 19-year mark. With current labor constraints, this timeframe could be extended, but extending it also increases risk. It's crucial to have reliable protection for critical facilities like data centers, hospitals, and educational institutions; leaks in these areas are unacceptable. While some may take the risk to push the limits, it is more common for most to proceed cautiously. In tougher economic times, more may consider this option, and we hope they choose Henry coatings. Mehul, perhaps you could elaborate on the longevity that Henry coatings can provide for a roof.

Yes, absolutely. So Saree, on the Henry side, they offer several roof coating applications. They have roof mastics, which they could do in the short term, by themselves 1 or 2 seasons to restore an existing roof that's not in horrible shape, that's not damaged or leaking. There are silicon roof coating applications that could extend it further maybe 5 years or so. But a lot of these roofs that are getting completely replaced, they're probably past that cycle and you're going to require 1 or 2 years of that temporary roof patching solution that Henry offers.

Understood. And then just to make things clear in the guidance, I think in your 4Q 2023 outlook for adjusted EBITDA up 200 basis points. What's the base case for that? Is that with CIT and CFT? Without? Can you just help us understand where we’re coming from with the up to 200 basis points?

Yes, that’s we’re taking CIT out of both the '22 and '23 numbers.

Got it. Okay. That's helpful. And then I guess last one. Can you talk about the competitive environment into next year, just given these potential market headwinds that you’ve discussed? And maybe think about a framework for how we think about price/cost if we do see lower market end market demand given some of your commentaries on oil prices.

I believe it's been a very competitive market this year, and we need to acknowledge the teams we compete against. When Elevate was sold, Firestone and Holcim acquired them, bringing in capable operators, and they've proven their ability to execute well. Their acquisition of Malarkey and Duro-Last shows they know how to manage their operations effectively. GAF remains a strong competitor and a quality company. Overall, I don't anticipate significant changes in the competitive landscape. It's been challenging, and I expect all companies will continue to invest in research and development, their channels, and manufacturing facilities. Regarding price and cost, we have seen stability, although there may be potential for price adjustments if raw material costs significantly rise due to issues in the Middle East or other disruptions. However, I don't see that happening at the moment. Overall, I expect more of the same moving forward. It's October now, and we will have a clearer picture as we approach December and process more information, which will allow us to provide additional insights.

And your next question comes from the line of Garik Shmois from Loop Capital.

Just on the margin outlook for the fourth quarter, with the 200 basis points of expansion you're expecting. Would you expect CCM margins to be up year-on-year in the fourth quarter? Or is all the gains coming from CWT just given how strong the margin ramp has been there?

It's a balanced piece between CCM and CWT where, as I said earlier or last quarter, we're looking at CCM to target 30% for the year on EBITDA. So that implies improvement in the fourth quarter. And then, yes, absolutely with CWT, they continue to improve. Last quarter, say, up to 350 basis points. We're probably more like 400 basis point to 450 basis point improvement year-over-year for the full year for CWT.

Perfect. That's helpful. I wanted to ask just in some of the discussions around project delays and CWT, I just want to get more clarity there. Is that mostly on the residential side, given that was the kind of the category that was softer? Or are you seeing project delays on nonresidents impacting that segment?

I’d say it’s more on the commercial side. The factors, such as tightening commercial lending standards, are influencing this. We’re finding that people need multiple sources of debt now when they used to manage with just one. Additionally, labor remains a consistent constraint. We don’t see significant changes in the labor pool, and we anticipate that the construction industry won’t see many additions to the labor force in the coming years. This is why we emphasize the Carlisle Experience and labor-saving products, as we consider them crucial.

Got it. Okay. Last one for me, just on inventories in CCM in the channel, encouraging to hear the destocking, some largely run its course finally. As you look to '24, certainly, a little bit early, but would you expect distributors to manage their inventory in more normal seasonal patterns or just given some of the macro uncertainties at this point as a base case would be prudent to expect distribution to take a more conservative view on their inventories for the time being.

Well, inventory is a use of cash, right? So when you have the interest rate levels we have today and with people borrowing and things like that, I think they’re going to be managing their inventory levels pretty tightly. It’s going to be a line item. I think every CEO and business leader is going to be looking at as we get into Q4 and through to Q1, just because, again, those are seasonally light, and I think they would be managing the inventories tightly anyway. So maybe you can say that’s the double whammy of having a seasonally light couple of quarters coupled with some higher interest rates. But I think as we go into the year, I think we are thinking that 2024 is going to look a lot more like a normal year. We’ve had the COVID experience and the destocking experience, and we get back to some level of normalcy and see inventory levels get back up to where they’ve been historically, say, in 2019 to service what we still think is a really positive outlook for the industry longer term.

And your next question comes from the line of David MacGregor from Longbow Research.

I wanted to quickly ask if you could provide the price and cost numbers for CWT since I caught those for CCM but missed the details for CWT.

CWT, overall for the full year, we're $40 million plus.

$40 million plus, okay. And then just a question on industry capacity, both for TPO and for polyiso, we get into 2024, will industry capacity be up in percentage terms for each of those two categories versus 2022 or 2021, looking back over 2, 3 years?

Well, I’m looking back as to what’s been added. And I think we’ve always said this industry has been pretty rational in terms of adding lines. We did add our sites in line for polyiso. We did add our 16-foot line in Carlisle for TPO. Obviously, no change in EPDM in the industry. A couple of years ago, we saw Eco had a facility, I think, in Maryland, and I think GAF might have added one in Eastern Pennsylvania for TPL and polyiso. So I think that’s it. PVC no real additions there that I can think of. So I think industry capacity is still compared to the historical averages. We’re right in line with where we probably should be given market growth in that. I don’t see any massive additional capacity being added or having been added. So I’d say...

I mean, when you can think about what you’ve added, what GAF has added, is there any way to express that as a percentage over a base maybe 2 years ago?

We used to say that one factory in TPO or polyiso added about 5% to 7% to the industry's capacity. As the industry has grown, I believe that figure is still likely accurate.

Okay. That’s really helpful. Last question for me is just you’re passing that pivot point now. So congratulations on all the progress on getting to where you are now. Presumably, there’s quite a substantial inorganic growth chapter ahead of you. I wonder if you could just talk conceptually about where within your business you see maybe the opportunities as you pursue that building envelope vision, what is the big sort of white space opportunities for you within that building envelope opportunity?

Yes, we could have an extensive discussion about the building envelope space, which includes everything from windows and doors to garage doors, shingles, and nails. There's a wide range of topics we could cover. However, for us, if we focus on our core strengths, it will revolve around the building envelope, roofing concepts, and wall-related opportunities. When we evaluate potential ideas, we will consider their synergies within the channel, such as how they can support our retail presence and large store partnerships. Frank has recently opened a new channel for us that presents interesting opportunities. We are examining new product prospects, particularly in roofing and wall cladding, where we already have certain processes and raw materials that could complement offerings, like insulated metal building panels, and we also work with metal and polyiso. We believe there are enough channel and core synergies in the products to keep us aligned with our current direction and not stray too far from it. For instance, we won't venture into nails or equipment related to cranes. Our focus will be more on acquisitions related to CCM, CWT, adhesives, sealants, roofing materials, and metal products.

Where are acquisition multiples right now, Chris?

They’re moving, I think. This is one of the interesting things. I think we all knew they were pretty high for the last couple of years, and I think they’re moving down, I think, for types of businesses we look at. Probably in the 8% to 10% range, maybe 9% to 11%, something like that, depending. But I think there’s also value to be had a little bit lower as people get more realistic about the surge that came with COVID and what’s happening in the market. I also think, seeing things in the private equity markets around wanting to seeing extended monetization events, the time keeps extending. And so we think there may be some opportunities to generate some lower multiples and opportunities for exit by looking in that space.

And your next question comes from the line of Adam Baumgarten from Zelman.

If we think about where you stand today and assuming stable price, stable costs, on the input side, how would that look in terms of the impact of next year at this point?

I apologize, but you're cutting out. I believe you asked about how stable prices and stable costs might affect next year. We don't want to speculate too much about next year given the current market situation. However, we observed that this year was quite turbulent, yet pricing remained relatively steady along with raw materials. In fact, we even saw some benefits from that. We'll have to wait and see how the markets evolve. As Kevin mentioned, our outlook for the fourth quarter looks positive, indicating another stable quarter. Last year’s first quarter wasn’t our strongest, with revenue in the high 500s. If we can exit this year with figures around 650, 660, or 670 for the fourth quarter, it suggests that we could start the new year on a stronger note. Furthermore, if we can maintain reasonable interest rates and restore some confidence in the economy, it may very well turn into a good year.

Okay. And then I guess if we think about demand into the fourth quarter, given your implied guidance, and if we strip out the destocking in 3Q, it seems like 4Q is maybe a little bit lighter than usual. If you could just kind of walk through the moving pieces there, if there's still some other kind of one-off type like factors in that guidance?

Yes, really no one-off things. It's just more of the things we talked about with some of the project delays would be the biggest piece, and that's all around the interest rates and market uncertainty that for economic uncertainty that people try to delay some of those jobs.

Okay, I want to thank everyone for joining us on the call. And we look forward to, first of all, launching our Vision 2030 in December and sharing all those details with you. And we'll be in touch on that. And then following up with our fourth-quarter call as we end the fourth quarter and move into 2024. So thanks very much, and look forward to talking to all of you very soon.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.